Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has requested comments regarding the possible expansion of the safe harbor valuation regulations under Code Sec. 475 (Reg. §1.475(a)-4) so that financial institutions headquartered outside the United States can qualify to make this election. Under the current regulations, if an eligible taxpayer makes the safe harbor election, the values of certain positions that the taxpayer reports on an eligible financial statement are treated as those positions' fair market values for purposes of Code Sec. 475. However, some internationally headquartered financial institutions have commented that the current safe harbor valuation regulations prevent them from using the safe harbor.

  The IRS requests answers to the following questions:

  (1) If the existing regulatory requirements discussed above were expanded to permit internationally headquartered financial institutions to make the election described in Reg. §1.475(a)-4(b), are a significant number of those institutions likely to make the election?

  (2) If the safe harbor were expanded to include circumstances where the values reported in the U.S. call report of a foreign bank are the same values that are reported in a mark-to-market income statement filed in the bank's home country, how will the IRS be able to match the values used for tax purposes with those on the home country income statement?

  (3) What is the relationship between the call report and the home-country income statement? Are there foreign currency translation considerations between the two? How might those be resolved so that the IRS can effectively and efficiently audit the records?

  (4) If the definition of "applicable financial statement" is expanded, should the applicable financial statement be the one filed by the foreign bank with its home country bank regulator rather than with a home country market regulator (like the SEC)?

  (5) How, if at all, does mark-to-market valuation under IFRS take expenses into account, including funding costs or any similar amount (e.g., cost of carry)?

  (6) In what circumstances is Code Sec. 475 relevant for other purposes of the tax code and in what circumstances do the policies of other sections of the code and the regulations that rely on asset values determined under Code Sec. 475 (including those determined pursuant to an election under Reg. §1.475(a)-4(b)) require special adjustment to the amount determined under Code Sec. 475?

  (7) Should the definition of "eligible method" go beyond the accounting methods that the SEC has accepted? If so, what is an appropriate (and administrable) framework for evaluating whether such a method complies with the basic criteria outlined above?

  Comments should be submitted on or before November 1, 2008, and should include a reference to Notice 2008-71.

Notice 2008-71, 2008FED ¶46,538

Other References:

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.042

  Tax Research Consultant

  CCH Reference - TRC SALES: 45,362